Danaher had a disappointing 2024. His path to success next year runs through Wall Street
Life sciences company Danaher certainly hasn’t been an easy stock to own this year. A wave of IPO startups on Wall Street would go a long way toward changing that. Performance since the start of the year: down 0.1% Forward price/earnings multiple: 27.8 versus a five-year average of 28.8 Our rating: buy equivalent 1 Our target price: $305 per stock DHR YTD mountain Danaher since the beginning of the year stock market performance. ’24 look back This year saw a recovery in the bioprocessing market, which had been under pressure due to high inventories at large customers and limited funding for smaller biotech startups that purchase Danaher equipment and products. The other issue Danaher raised was China, where economic growth has struggled all year and announced stimulus measures have failed to translate into a significant recovery in orders. This is really what has made this year so frustrating to invest in Danaher. Management executed well and did its best to control investor expectations for bioprocess orders, then as soon as business started to turn around and the stock gained some momentum, investors refocused their attention on negative economic updates from China. Even so, we kept Danaher as one of the top 12 holdings in the portfolio. For what? Jim Cramer’s Investing Rule #20: Patience is a virtue and giving up value is a sin. Even though Danaher may trade at a premium to the S&P 500, we see a lot of value in this stock due to the long-term appeal of its life sciences end market, including bioprocessing, and from the quality of its management team, which is always looking for new ways to shed slower-growing businesses and refresh the portfolio with multi-year growth in mind. ’25 looking ahead In addition to the bioprocessing sector’s continued rebound, Danaher needs China’s economy to regain strength, which should lead to increased orders from customers in the country. In the bioprocessing sector, large pharmaceutical customers are only one part of the business equation. With inventory levels largely resized, new orders should begin to accelerate. The other part of the equation concerns small startups who have seen their access to financing hit hard following the collapse of Silicon Valley Bank in March 2023. While lower interest rates can certainly lead to more financing from the private market, it should also improve the context for IPOs. And a better IPO market is very good news for Danaher, as Jim explained at the December monthly meeting. “One of the first things biotech companies do when they go public is place large orders with Danaher… That means to me that 2025 will be much better than 2024, even if China doesn’t doesn’t improve,” Jim said. Make no mistake: growth in China is obviously desirable and our preferred outcome. But we are also aware that this year’s lackluster performance at least serves to facilitate year-on-year comparisons with China in 2025. As a result, it could distract from the struggling region as Investors stare down Danaher’s numbers, understanding that this is simply beyond management’s control but should eventually improve. (Jim Cramer’s Charitable Trust is long DHR. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY OBLIGATION EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
A worker uses a machine made by Pall Corp. during a demonstration of the clarification stage of flu vaccine production during a visit to a Sanofi Pasteur vaccine production facility in Swiftwater, Pennsylvania.
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Life sciences company Danaher certainly hasn’t been an easy title to own this year. A wave of IPO startups on Wall Street would go a long way toward changing that.